Bitterly divided U.S. politicians will hit a crunch deadline today as they struggle to reach a deal to cut the country's deficit and avert a potentially catastrophic default.
Democrats and Republicans were working on separate budget plans as the negotiations remained deadlocked over the weekend - but they must thrash out an agreement urgently if they are to pass crucial legislation in time for the cut-off date of August 2.
Washington has until next Tuesday to cut a deal to increase its £8.8trillion debt ceiling or face running out of money to pay for essential public services.
Talks founder: President Barack Obama is struggling to get divided politicians to agree how to tackle the U.S. deficit
Failure would mean the U.S. could be stripped of its triple-A credit rating, which would cause havoc in global markets.
Treasury Secretary Timothy Geithner has warned that the two camps need to come up with the basis of a deal by today to avoid this fate.
‘They need to get this process moving in the House by Monday night,' he said. ‘To achieve that deadline they need to have a framework that they know with complete confidence will pass both houses of Congress that is acceptable to the President.’
The brinkmanship across the Atlantic has led to nervousness on European financial markets, with the FTSE 100 trading down 16.2 points at 5,918.8 today.
Graph shows the history of debt in the U.S. Recent years have seen a dramatic spike in overall debt (top) and debt in relation to the overall size of the economy (bottom).
Germany's Xetra DAX was down 13.3 points at 7,313.1 while France's CAC 40 dropped 21.9 points to 3,820.1, following slides on Asian markets overnight.
The U.S Democrats, led by President Barack Obama, believe that any plan to reduce the gaping budget deficit has to include some tax rises.
But this proposal is vehemently opposed by the Republicans who control the House of Representatives, and whose resolve is being stiffened by their hardline Tea Party bloc.
The crisis in Washington and its potentially devastating consequences for the rest of the world sparked unusally sharp criticism of the political affairs of another country from Business Secretary Vince Cable yesterday.
Mr Cable accused Republican politicians in the U.S. of sabotaging the economic recovery by opposing tax rises.
He told the BBC’s Andrew Marr show: ‘The irony of the situation at the moment is that the biggest threat to the world financial system comes from a few right-wing nutters in the American Congress rather than the eurozone.’
Michael Hewson of spreadbetter CMC Markets said: 'Up until now the markets have given U.S. politicians the benefit of the doubt with respect to passing a package, taking the view that despite all the posturing neither side would be stupid enough to risk a run on US treasuries, as well as the likelihood of a damaging default.
'Treasuries have so far been largely immune from the turbulence in financial markets as a result of the turmoil in Europe. As the 2nd August deadline looms ever closer without any agreement, this could well change and push yields higher.'
Gary Jenkins of broker Evolution said the U.S. was still expected to agree a deal on the debt ceiling and avoid a default because not doing so would be such a dangerous path to take.
'Whether or not they can persuade the [rating] agencies that they have a real commitment to any plan regarding reducing the debt load is debatable and they are certainly giving the agencies every opportunity to review the AAA rating,' he said.
0 comments:
Post a Comment
Terima kasih telah memberi komentar.